Another Ethics Question

Let’s say that a fund manager manages the accounts of several high net worth individuals. He changes his recommendation on a stock that all of his clients own, from buy to sell, and sends an e-mail to all of his clients advising them of the change. Then within 2mins of sending the e-mail he gets a call from one of his clients asking him to sell the stock. The fund manager must be aware that the majority of his clients haven’t read the recommendation change, even though he did send it to everybody at the same time. So considering Standard III b ‘Fair dealing’, what is the fund manager supposed to do? Should he wait until there is a reasonable amount of time elapsed, so as to be assured of the dissemination of the new information among his other clients, before executing the trade? Or should he just go ahead? What do you think??

I think it’s ok to go ahead and execute the trade but he should definitely keep well- documents records that he has distributed the new stock info equally among all clients. If he doesn’t do the trade as the client ask and the clients potential loss increases due to the sell recommendation… wouldn’t he also be in violation of Standard Duties to client?

Hmmmm… Yeah i agree in general. But what if the client who calls first is such a big investor that it’s likely that the trade will deflate the value of the stock. Which basically means he’s screwing over the other clients if he accepts the trade…?

He should just go a head

What kind of manager would you be if you refused to process sell orders? If you didn’t sell despite your own recommendation of sell, the client would sue you for losses and some interpretation of CFAI’s rules would be worth 0 in real Court. Anyway, refusing to churn an account because you can’t fairly churn all accounts is kind of amusing.